A former employee of a company allegedly affiliated with domain name registrar DirectNIC claimed the company operated a fraudulent domain arbitrage scheme using Yahoo ads and Parked.com.

Mark Deshong filed a whistleblower lawsuit in August. It was settled in October, but its claims are quite interesting, and don’t appear to have been reported on elsewhere.

Until April this year, Deshong worked for a company called Keypath LLC, a domain registration and monetization company based in Tampa, Florida.

According to his lawsuit (pdf), Keypath is owned by the same bunch of people (notably Sigmund Solares and Michael Gardner) who run DirectNIC and Parked.com, as well as entities including Intercosmos Media Group and The Producers Inc.

Deshong said he was fired after blowing the whistle on a “fraudulent” scheme to bilk money out of Yahoo Search Marketing using the old practice of domain arbitrage.

The suit claimed Keypath bought ads on YSM to bring traffic to sites such as cameras.com that, in turn, displayed nothing but contextual ads generated automatically by YSM.

The company would pay Yahoo small amounts for the traffic it received, but would be paid larger amounts for the traffic it sent elsewhere.

That’s domain arbitrage in a nutshell. It was commonplace among domainers back in 2007 and earlier, and Keypath was far from the only company engaged in the practice.

Yahoo tried to put a stop to arbitrage on its ad network in February 2008, as Domain Name Wire reported at the time, but the lawsuit alleged that Keypath carried on regardless, using bogus identities.

This is when the “fraudulent” behavior is alleged to have commenced.

The suit claimed Keypath “created fictitious, unregistered DBA [Doing Business As] company names” in order to obtain up to 1,000 credit cards from Regions Bank.

The complaint, in an eyebrow-raising paragraph, goes on to list almost 100 of these alleged DBA companies’ names.

Each one of these companies would get a Gmail or Hotmail email address and a Skype phone number for the city where the “fictitious” company was supposedly based, the complaint alleged.

A proxy server would be obtained in each of these cities, which Keypath would use to access YSM and order ads pointing to parked pages, under the guise of one of the DBAs, the suit alleged.

The scheme covered about 50,000 domains and made about $375,000 during January 2010, according to the complaint.

The lawsuit was filed under Florida’s whistleblower act, so while it alleged multiple illegal acts (such as bank fraud and wire fraud) on Keypath’s part, it only attempted to prove wrongful termination.

Deshong basically claimed that he was canned after telling his superiors he could no longer carry out duties he believed to be illegal – he didn’t want to go to jail.

In its response (pdf) to the complaint, Keypath denied essentially all of Deshong’s claims.

It also denied that the company has ties to DirectNIC, Michael Gardner, Sigmund Solares, Intercosmos, Parked.com or The Producers.

(Probably a disingenuous claim. Florida company records show they’re all currently or recently linked to businesses located at 5505 West Gray Street in Tampa, Parked.com’s main US office. Keypath’s web site shows the same address).

Keypath also accused Deshong of a shakedown, attempting to “extort an unreasonable severance package”, and said that he had “improperly retained” a company laptop after he was fired.

The suit was settled out of court (pdf) on October 25th for an undisclosed sum.

The lawsuit is only tangentially related to the cybersquatting lawsuit Verizon filed against DirectNIC earlier this year. That case appears to be currently tied up in a pre-trial discovery/jurisdictional nightmare.

Employ Media, the .jobs registry, had a victory in Cartagena last week, when the ICANN board voted not to overturn its August decision to allow .jobs to relax its registration policies.

The company will now be able to continue with its RFP process, allocate premium generic .jobs domains to its partners, auction them, and generally liberalize the namespace.

But the registry may not have got everything it wanted.

For at least a year, Employ Media, along with the DirectEmployers Association, has been pushing the idea of creating a massive free jobs board called universe.jobs.

The site would be fed traffic from thousands of premium geographic domains such as newyork.jobs, texas.jobs and canada.jobs, as well as vocational names such as nursing.jobs and sales.jobs.

Because Employ Media was previously only allowed to sell domains that corresponded to the names of companies, such as ibm.jobs and walmart.jobs, it asked ICANN to change its contract to allow these new classes of generic names to be registered.

A few weeks later, a group of jobs sites including Monster.com, calling itself the .JOBS Charter Compliance Coalition, filed a Reconsideration Request, asking ICANN to reverse its decision.

The Coalition was concerned that the contract changes would enable universe.jobs, creating a potentially huge competitor with an unfair SEO advantage, while continuing to prohibit independent jobs sites from registering .jobs domains.

While the .jobs contract had been amended, the .Jobs Charter, which restricts those who can register .jobs domains to members of the human resources community, was not.

This potentially presented a problem for universe.jobs, as DirectEmployers may not have qualified to be a registrant under the charter.

But Employ Media’s RSEP proposal talked about creating a “self-managed class” of domains – the domains would belong to the registry but would be shared with third parties such as DirectEmployers.

That would have created an interesting precedent – registries would be able to keep hold of premium generic domain names and allow them to be “used” by only partner companies that agree to enter into revenue-sharing agreements.

But that “implementation method was withdrawn” by Employ Media after the ICANN Board Governance Committee asked about it as part of its Reconsideration Request investigation.

The BGC, while rejecting the Coalition’s request (pdf), also asked ICANN’s compliance department to keep a close eye on Employ Media, to make sure it does not overstep the bounds of its charter:

the BGC recommends that the Board direct the CEO, and General Counsel and Secretary, to ensure that ICANN’s Contractual Compliance Department closely monitor Employ Media’s compliance with its Charter

Even though its Reconsideration Request was denied, the .JOBS Charter Compliance Coalition counted both of these developments as a big win for its campaign, saying in a press release:

Given the Board’s commitment to aggressively monitor Employ Media’s implementation of the Phased Allocation Program, the Coalition is highly confident that ICANN will not permit Employ Media to register domain names to “independent job site operators” for purposes of operating job sites.

So does this mean that universe.jobs is dead?

Apparently not. Talk in the halls at the ICANN Cartagena meeting last week leads me to believe that the registry has figured out a way to launch the service anyway.

And DirectEmployers this Monday published a white paper (pdf), dated January 2011, which says universe.jobs will launch early next year.

DirectEmployers declined to immediately comment on its plans when I inquired this week, and the white paper sheds little light on the technicalities of the plan.

Judging from a promotion currently being run by EnCirca, a .jobs registrar, it seems that companies will only be able to list their jobs on universe.jobs if they own their own companyname.jobs domain.

EnCirca’s offer, which alludes to the .jobs sponsor, the Society for Human Resources Management, a “SHRM special“, says:

NEWS ALERT: December 13, 2010: ICANN has RE-CONFIRMED the .Jobs registry’s plan to allocate generic occupational and geographic-related .jobs domain names. Register your companyname.jobs to be part of this new initiative.

It will be interesting to see how domain allocations are ultimately handled.

While Employ Media’s request for proposals is ostensibly open, it looks a little bit like a smokescreen for its plan to hand big chunks of the .jobs namespace to the universe.jobs project.

But who will be the registrant of these domains? And will the allocations violate the .jobs charter? Will the registry carry on with its plan to create new “self-managed” class of domain names?

It notes that applications cannot be solicited until ICANN has finished its mandatory four-month outreach/marketing campaign, which in turn can’t kick off until the AGB has been approved.

I’ll let the rest speak for itself:

If the Board were to approve the Guidebook after the January/February meeting, the announcement and communications campaign launch would be made shortly thereafter. The first applications could be received as early as (but not earlier than) 1 July 2011.

If the Board elects that a full comment analysis and sixth version of the Guidebook be written, with approval at the Silicon Valley meeting, the approval would be followed by an April announcement and communications campaign launch. First applications could be received as early as (but no earlier than) August 2011.

And here’s a lovely graphic illustrating the options (click to enlarge):

Given that we now know that the ICANN board intends to meet with the Governmental Advisory Committee to address its outstanding issues in February, the final scenario – with a San Francisco approval and August launch – now seems more likely.

The newly forming industry body tasked with taking down web sites selling fake pharmaceuticals plans to meet next month to develop its mission statement and charter, according to Go Daddy general counsel Christine Jones.

Jones said in an interview tonight that the group, which Go Daddy is jointly “spearheading” with Google, is likely to meet in Phoenix, Arizona in the third week of January.

As I blogged earlier today, the organization was formed following a series of meetings at the White House, which has a policy of reducing counterfeit drugs sales online.

Domain name companies including Go Daddy, eNom, Neustar and Network Solutions are joined in the currently nameless non-profit by the three major search engines and all the major payment processors.

Jones confirmed that redirecting a domain name is an action a participating registrar could take if it finds an infringing site. Go Daddy and others already do this in cases of child porn, for example.

But the group will also share information about fake pharma sites so Google, for example, would also be able to block them from search and Visa could stop payments being processed, Jones told me.

The White House meetings were organized by Victoria Espinel, the administration’s Intellectual Property Enforcement Coordinator (IPEC).

So, while the group has yet to formalize its policies, I wanted to know what the prevailing opinion is on how “illegal” a site will have to be before the group will try to take it down.

Taking down a site selling sugar pills or industrial acid as HIV treatments is one thing, killing a site selling genuine medications to people without prescriptions is another, and blocking a legit pharmacy that sells drugs to Americans with prescriptions more cheaply from across the Canadian border is yet another.

Jones said: “If a pharmacy is a licensed pharmacy and is abiding by whatever the state rules are wherever they’re located, that’s not our target.”

Apparently the new organization, which will be formed as a non-profit entity, may help the companies to avoid running afoul of ECPA, the US Electronic Communications Privacy Act.

Jones said that other companies participating in the White House meetings still have not decided whether to join the new group or not. End-of-year budgetary issues may be a factor here.

Domain registrars have come in for considerable flak over 2010 for allegedly not doing enough to counter fake pharma sites.